Factoring - 9727 Words

[pic] |INDEX | |CHAPTER No. |Particulars |Page no. | |1. |Introduction, meaning defination. |3 | |2. |Modus operandi, terms and condition |4-6 | |3. |Function, types, beneifits of factoring |7-10 |†¦show more content†¦According to Webster dictionary ‘Factor’ is an agent, as a banking or insurance company, engaged in financing the operation of the certain companies or in financing wholesale or retail trade sale, trough the purchase of account receivables. As the directory rightly points out factoring is nothing but financing through purchase of account receivables Thus, factoring is a method of financing whereby a company sells its trade debts at a discount to the financial institution. In other words, factoring is a continuous arrangement between the financial institution and a company which sells goods and services to trade the customer on credit. As per this arrangement, the factor purchase the client’s trade debts including account receivables either with or without recourse to the client, and thus, e xercise control over credit extended to the customers and administer the sales ledger of his client. The client is immediately paid 80percent of the trade debts taken over and when the trade customers repay their dues, the factor will make the remaining 20 percent payment. To put in layman’s language, a factor is an agent who collects the dues of his client for a certain. 1.3 DEFINATION Robert W. Johnson in his book ‘Financial Management’ states, â€Å"factoring is a service involving the purchase by a financial organization, called a factor, of receivables owned to manufacturers and distributors by their customers,Show MoreRelatedThe Impact Of Factoring On An International Scale1102 Words   |  5 Pages Factoring is a form of commercial finance which provides funding services to businesses who either do not qualify for traditional financing or who desire to outsource their receivables and credit management to a third party while also having the option of drawing funds against the receivables being managed by the factor. Additionally, companies who are experiencing growth choose factoring as a finance tool due to its availability and flexibility as an aid to fuel their growth. Much can be learnedRead MoreDebt and Factoring1005 Words   |  5 Pagesquickest forms of low cost business finance is factoring, where you can get up to 85% of the value of your invoice immediately, and the remainder (minus the factoring company’s fee) after the money is collected. kFactoring is one of the best ways to get quick finance, improving your cashflow and allowing you to make the most of your sales without risking late payment. What is factoring? You can image that just be simple to sell your invoice to a factoring company. You can get cash quickly, have a chanceRead MoreAdvice For Noc Ltd, A Uk Toiletry Manufacturer1451 Words   |  6 Pagesface cash flow risks due to their open account trade as buyers are enjoying 30 days credit thereby causing NOC Ltd to run out of cash to pay its creditors. However, NOC Ltd can use other trade finance techniques, such as export credit insurance, factoring or even negotiate a period of credit from its suppliers to help mitigate the risk of non-payment which is associated with the company’s 30 day open account trade. An export credit insurance provides protection against commercial losses such as defaultRead MoreAccounting Finance Questions1228 Words   |  5 Pagesfinancing to solve the cash-flow problem. Discuss how this form of finance works and explain which institutions provide this form of finance. ii) An alternative arrangement is debt factoring. Describe the nature and operation of factoring as a form of finance and explain why a company may prefer debt factoring to accounts receivable financing.Read MoreAging Schedule of Accounts Receivable1396 Words   |  6 Pages8%36590=1.97% Total interest paid=1.97% Ãâ€"$35,200=$694.36 EAR= $ 694.36+$800$35,200Ãâ€"36590=17.22% The effective annual rate for pledging accounts receivable and factoring accounts receivable is 9% and 17.22%, respectively. 7. If I were to represent the commercial bank I would tell Howard that pledging his accounts receivable is better than factoring because there will be no transfer of the ownership of the accounts receivable and customer remittances will go directly to the company. In addition, hiringRead MoreSources of Finance1627 Words   |  7 PagesVenture Capitalists want their money back and profits either made from the business or out of the owner’s personal money in a short period of time. This is why they invested. Factoring- debt factoring means that the business sells its debt to another company and receives some of the money immediately. The debt factoring company collects the debts and takes a percentage cut for this service. An advantage could be a business can immediately receive cash for the customer accounts receivables thatRead MoreEffectiveness Of Working Capital Management Essay2137 Words   |  9 Pagesregularly so that he tracks his account. SMEs can outsource the management of receivables. Most financial institutions offer debt factoring services. Debt factoring is an arrangement were the institution can decide to pay a certain percentage of your invoices let’s say 85% immediately and the remainder will be settled when the debtors have fully repaid. In Zimbabwe factoring is not very popular even though some few companies have opened offices in some of the major towns. Managers of SMEs can make goodRead MoreMergers and Acquisitions: Proctor and Gamble, and Wella Ag3268 Words   |  14 Pagesintermediary who purchases accounts receivable at a discount. Under a factoring agreement companies sell or assign its account receivable to a factor in exchange for a cash advance (irs.gov). The factor typically changes interest on the advance plus a commission. The price paid for the receivables is discounted from their face amount to take into account the likelihood of uncollectibilty of some of the receivables (washington post.com, nd). Factoring is a technique used by companies to manage their accountsRead MoreButler Lumber Case952 Words   |  4 Pagesso was to calculate external funds needed, which was found to be $509.46 (Exhibit3). It was then understood that factoring accounts receivables at a discount of 3% would cause current assets to decrease by $8.02. By deducting this amount from the $509.46 EFN, we obtain net EFN of $501.44. We analyzed various options to achieve this level of EFN and found that a combination of factoring accounts receivables and maximizing our bank loan with Suburban National Bank was the viable solution. As statedRead MoreCase Module G : Walt Pavlo Mci2638 Words   |  11 Pageswrite-off the debt and share with Mann the payments received by the clients. Mann and Walt created this scheme to embezzle MCI clients into making payments believing the payments were to pay-off an agreement with Manatee Capital, in the business of factoring accounts receivable. This scheme was fraudulent, unethical and illegal. 2. What ethical issues should have occurred to Walt and MCI in regard to the schemes described? While devising the schemes, many ethical issues should have occurred to Walt